Q3 2023 Tenable Holdings Inc Earnings Call
Greetings and welcome to Tenable Q3, 2023 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Erin Connie Vice President Investor Relations. Thank you Ms. Connie you may begin.
Thank you operator, and thank you all for joining us on today's conference call to discuss carnivals third quarter 2023 financial results with me on the call Today Army, Iran, Our Chief Executive Officer, and Steven <unk>, Our Chief Financial Officer. Prior to this call we issued a press release announcing our financial results.
For the quarter you can find the press release on the IR website at Tenable Dot Com before we begin let me remind you that we will make forward looking statements. During the course of this call, including statements relating to our guidance and expectations for the fourth quarter and full year 2023 and expectations for the first quarter 2020.
Four.
Growth and drivers in our business.
Changes in the threat landscape in the security industry, and our competitive position in the market growth in our customer demand for and adoption of our solutions, including tenable one.
Planned innovation and new products and services, the potential benefits and financial impact of our recent acquisition of aromatic and our expectations regarding long term profitability and free cash flow. These.
These forward looking statements involve risks and uncertainties some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements you should not rely upon forward looking statements as a prediction of future events forward looking statements represent our management's beliefs and assumptions only as of today.
Should not be considered representative of our views as of any subsequent date, we disclaim any obligation to update any forward looking statements or outlook.
For further discussion of the material risks and important factors that could affect our actual results. Please refer to those contained in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q for the quarter ended June 32023.
Subsequent reports that we file with the RPE, which are available on the SEC website Adelphi Dot Gov.
In addition, during today's call, we'll discuss non-GAAP financial measures.
non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with Scott. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent.
Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of our website I'll now turn the call over to Amit.
We delivered a solid Q3 with strong contributions from tenable, one O T and the public sector. In addition, we continue to deliver significant margin leverage.
Delivering a 10 million dollar b to operating income.
While the underlying performance of the business was good this quarter. It makes a lot of business was different than we typically see and led to an unusual divergence between sale and CCD.
At a high level to the outsized strength in public sector, we saw a much larger mix shift to perpetual licenses and services with minimal contribution to CCD.
Our flexible deployment model, giving our customers the ability to optimize the architecture in the cloud on premise or hybrid which directly benefits our customers through unified visibility and simplified management.
We believe we are the only vendor to deliver exposure management for both on premises and hybrid deployments, which enables us to address our customer deployments biases.
During the quarter, we added a record number of seven figure customers a testament to the growing importance of our solutions and our strike and public sector and large enterprise.
Our products are helping customers secure even more areas of their attack surface expanding their use cases and consolidating around travel.
In particular, our outperformance in federal reflects a strong mix of business and our expansion into larger more strategic deals. We're also seeing great traction in signing large deals it's been not only our growing leadership in this space.
This boils down to our installed customer base Trust and love to expand beyond VM.
To help them manage risk using our portfolio of products.
We believe our leadership in helping organizations understand risk positions us for considerable opportunity going forward, but we think we're still in the early innings left.
While we're pleased with our performance for the quarter and saw strikes in large deals we're seeing some softness in the mid market, which we expect to persist in Q4 and into next year.
As their use of technology continues to expand customers are looking for clarity around the attack surface, including accurately identify all the assets in their environment and prioritizing which areas of the attack surface are most at risk.
Tenable one connects the dots from externally facing point of attack.
Coffee is hard surface of systems.
These permissions vulnerabilities and configurations and delivers differentiated analytics, including building after the inventory.
Identifying and prioritizing attack path, which magnified risk.
As an innovator, we continued to build out capabilities with incredible what we're now using generative.
Actually we expect the new features including fuel dependency assessment will only serve to accelerate our time to value for customers.
Looking at the buying patterns of customers, we continue to see a broad distribution of asset types, particularly from our specialty products. We also saw strong adoption from tenable one from our security Center customers. This quarter Security center customers represent a very sizable base, but are increasingly operating in a hybrid environments.
Our ability to deliver insights and analytics incredible work without requiring them to go through structural changes resonates deeply with these customers.
Within our specialty products, we're seeing increased emphasis on active directory security and cloud security as customers continue to struggle with how to adequately manage risks in those areas of their attack surface.
Carnival cloud security now with their matter is.
Is it complete code to cloud highly competitive snap offering custom.
Customers everywhere understand that securing the cloud is critical and incredibly complex security teams have to be cloud experts defined and prioritized.
The most urgent risks and how to address them.
In many cases customers do not even know what assets. They have let alone what access has been granted to those assets. The situation is complicated further as cloud adoption accelerates and naturally multipliers user identities machine identities in a complex web of entitlements, which grow exponentially.
Carnival antibody are helping organizations address some of the most difficult challenges and cloud security today.
Our core security solutions are simplifying security management to meet the increasing and relentless demands of cloud infrastructure growth.
Additionally, they enable security professionals to understand the complex relationships and risk across asset identities and their entitlements and reduce the risk caused by an explosion in the volume and permission of users and machine identities in the cloud.
You need a combination of accountable Andrew Matt It gives customers a tightly integrated cloud native application protection platform.
[laughter] abilities for cloud environments.
I'll get user experience minimize the complexity can speed adoption.
Even a more mature organizations have not yet integrated commonly deployed security tools like Infrastructure's code cost security posture management cloud workload protection and cloud infrastructure entitlement management.
Multiple cloud environments.
Annabelle and robotic could bring together greater context to a customer's overall security program by integrating these point products into a single unified Ddos offering.
We're delivering unparalleled insight into identity and access which go hand in hand with configurations and vulnerabilities in being absolutely critical to securing cloud workloads and once the integration of insights you're talking about one customers can also consolidate simplify and reduce costs.
Our sellers are having incredible engagement with our customer pipeline is strong out of the gate and excitement is running high.
We continue to execute well with our product vision and balanced growth strategy.
Over the next few quarters will continue to execute on our product roadmap.
And integrate our medic.
Which we expect to enable us to demonstrate more leverage in our business.
Cyber security has never been more important nor more fundamental to our economies and business than it is today, requiring corporate leaders to elevate cyber security within their organizations.
Just one example, you have to be seen as recent cyber risk management and even for the disclosure rules required disclosures on board oversight and management role in assessing and managing material risks from cyber security threats.
Companies will continue to feel pressure from management teams boards and increasingly regulators shareholders and customers and we will continue to church attainable to understand where they're exposed and how to reduce risk.
I'll now turn the call over to Steve for further commentary on our financial results and outlook. Thank you.
Discussed earlier, we are pleased with the underlying performance of the business this quarter, which is not reflected in our calculated current billings.
I will provide more commentary momentarily, but first please note that all financial results. We discuss today are non-GAAP financial measures with the exception of revenue.
Aaron mentioned at the start of this call GAAP and non-GAAP reconciliations may be found in our earnings release issued earlier today.
Now onto the results for the quarter.
Calculated current billings defined as revenue recognized in the quarter plus the change in current deferred revenue grew 8% year over year to 224.7 million.
As I have mentioned on prior calls <unk> is typically a close but not perfect proxy for sales in the quarter and is influenced by a number of factors such as mix of business deal timing, including early renewals.
Central I P. O P E. B growth has generally tracked in line with the underlying sales growth of the business. However, this is the first quarter in which there was such a large disparity.
Current RPM growth in the quarter was 15% and is a closer approximation of the underlying performance of the business this quarter.
During the quarter, we saw significant outperformance in the public sector, specifically in U S federal which benefited from a robust spending environment related to the September 30th fiscal year at.
We closed a few strategic agency wide seven figure deals on both the defense and civilian side some of which are listed on public procurements sites. Consequently, the outperformance in U S. Federal resulted in a higher mix of public sector sales and overall, a much higher mix of professional services.
And perpetual licenses that either did not contribute or minimally contribute it to C. C b in the quarter.
The total impact here was approximately 12 million of lower CPE being the quarter.
Can you provide a little more color. These services are sold primarily with our V N and O T offerings that are tied to large government programs and included initial software purchases as part of deployment planning exercises that we expect will result in additional product purchases over the next several quarters.
We believe these large strategic wins not only demonstrate our leadership position in the federal market, but also give us a very significant opportunity to sell additional software in future periods.
Also please note that perpetual license software sales are recognized over five years not upfront. So for five of the annual contract is excluded from <unk>.
Another major highlight was terrible one which represented 20% of new sales in the quarter and grew over 100% year over year.
Despite these threats we did start to see some headwinds in the mid market, where spending was constrained, particularly with new logos.
Important to note that while the top of the funnel remains strong there appears to be a more cautious outlook from buyers in this market related to the broader macro which impacted our conversion rates in the quarter.
In terms of key metrics, we added 386, new enterprise platform customers in the quarter.
Also as discussed earlier, a large deals were strong as we added 58 net new six figure customers in the quarter.
And we also closed a record number of seven figure deals in the quarter, which reflects strength in the large enterprise market as well as the public sector.
Oliver This net expansion rate was 111% in the quarter compared to 111% last quarter. As a reminder, the expansion rate is calculated on an LTM basis.
Revenue was $201 5 million, which represents 15% year over year growth.
Revenue in the quarter exceeded the midpoint of our guidance range by $3 5 million.
Alright flat in comparison to last corner.
R&D expense decreased sequentially, primarily due to lower personnel costs, partially offset by increased public cloud Goss G.
TNA expense was 18.5 million, which is up from 17.8 million last quarter.
TNA expense as a percentage of revenue was 9% this quarter and flat relative to last quarter.
Income from operations was $36.6 million, which was significantly better than expected and exceeded the mid point of our got it range by approximately $10 million.
Operating margin for the quarter was 18%.
Which was 470 basis points better than the mid point of our guidance.
Sizable upside in earnings this quarter reflects the strength of our business model and our ability to cost effectively acquire customers and expand those relationships over time it's.
It's also worth noting that are operating margin improved over the same period last year by approximately 490 basis points.
Additionally, you will note 6.5 million of other expense net this corner.
Including this amount has a 5 million dollar impairment charge related to a strategic investment in a privately held company.
All of this resulted in EPS of 23 cents, which was approximately 4.5 cents.
Other than the mid point of our got it range.
Now, let's turn to the balance sheet, we finished the quarter with $693 million in cash and short term investments.
Accounts receivable was 179.4 million in total deferred revenue was $681.5 million.
Including 518.4 million of current deferred revenue, which gives us a lot of visibility into expected revenue over the next 12 months.
We generated approximately 48 million of Unlevered free cashflow during the quarter.
Your today on love or free cash flow was $132 million, which push us well within reach to achieve our annual on laboratory casually target for the full year, which were raising today after adjusting for the romantic acquisition.
With 95 per cent recurring revenue hi, gross margins in Reno right. We feel confident that we can continue to expand our operating and free casual margins over the ensuing years.
With the results of the corner behind Us I'd like to discuss our outlook for the fourth quarter and full year 2023, which reflects the estimated impact of the your medic acquisition that closed on October 2nd.
For the fourth corner, we currently expect revenue to be in the range of 200 and for the 208 million.
non-GAAP income from operations to be in the range of 23 to 24 million.
No I got net income to be in the range of 16 $17 million.
Interest expense on $8.3 million.
Interest income of 4.9 million in a provision for income taxes of $3 million.
non-GAAP diluted earnings per share to be in the range of 13 to 14 cents.
Assuming 123.5 million fully diluted weighted average shares outstanding and for the full year. We currently expect calculated current billing to be in the range of 862, two $870 million revenue to be in the range of 789.4 to $793 4 million.
Non <unk> from operations to be in the range of 107.9.
108.9 million.
non-GAAP net income to be in the range of 83 to 84 million.
Interest expense of 31.5 million.
Interest income of 24.2 million in a provision for income taxes of 9.1 million.
non-GAAP diluted earnings per share to be in the range of 68 to 69 cents per share.
Assuming 121 million fully diluted weighted average shares outstanding.
And on love or free cashflow to be in the range of $168 million to $173 million.
Oh I'd like to provide some commentary regarding her outlook today.
The trends we observed in the mid market in Q3 are expected to persist. So we think it's appropriate revise our C. C. B range for the year to reflect a more cautious outlook in Q4.
As well as the flow through a R. C. C. D result in the third quarter.
Revenue.
Which is recurring the nature, but flex a 3.5 million dollar B and Q3 in a 1 million dollar race.
Also as a reminder, or medic is not expected to contribute materially to the top line in the fourth quarter.
In terms of profitability, we are increasing your outlook for income from operations for the full year by 10 million.
Which reflects 815 million dollar beaten race for tenable and last 5 million related to the impact of the aromatic acquisition.
Net income for the full year reflects a 10 million dollar beaten race returnable less.
<unk> 8 million related to the impact of nomadic which includes 3 million a foregone interest income.
We're also revising or outlook for Unlevered free cash flow to reflect a 3 million dollar race tenable due to the operational efficiencies, we continue to realize in our business love.
15 million of course due to the impact of the acquisition.
In terms of 2024, we will provide guidance for Q1 and a full year on our earnings call in February, but we believe mid teen C. C V Graff.
Which reflects the contribution from romantic and the current selling the environment and the mid market is a fair expectation a graph for the upcoming year.
Q for is an important input the setting expectations for the upcoming here. So we want to have that data point in hand, before we discuss the business in more specific terms.
All of US that we will continue to effectively balanced growth of profitability and expect unlevered free cash flow to grow approximately 25% next year, which reflects the anticipated impact of romantic.
We expect dramatic.
Breakeven and I love her free cash on the fourth quarter of 2024 and be accretive D. E. P. S for the full year in 2025.
At this point I'd like to turn the call back over to a mate for some closing comments.
Steve and summary, Q3 is a clear indication of our ability to drive continued leverage in the business.
Exciting time in our business and have a ton of opportunity ahead of US we look forward to updating you on our next call.
And seeing you at the Needham da Davidson Wells Fargo.
Stevens and Barclays conferences, and becoming weeks.
Additionally, we expect to have an investor day in the first half of 2024.
We now have to open the call up for questions.
Thank you.
Now be conducting a question amounts of session.
If you would like to ask a question. Please press star one on your telephone keypad.
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<unk>, if you would like to remove your questions from the queue.
Pressing the stock east.
One moment, please pull for questions.
The first question comes from the line of Brian Essex with J P. Morgan. Please go ahead.
Hi, good afternoon, and thank you for taking the question I mean, he really appreciate the color around the the moving pieces with C. B C C b.
Ah meet just a question for you and I'll I'll, maybe keep it to one with regard to code. The cloud security, we're seeing a lot of different companies target. This space, whether it's larger platform vendors or best of breed vendors operating in certain nieces of that market, who do you typically see competitively how are you.
Winning in that market and what is your outlook for market share and any kind of like think about your ability to penetrate that space in the years ahead.
Yeah, So I guess I'll start off by saying you're tunnel's been an active participant in the cloud security market for some time, obviously move forward with an acquisition of <unk>, some time ago and continue.
Continue to build organic capability ages agentless assessments I do some integration along those lines.
With the most recent acquisition at the beginning of two four over medic. We believe we have a highly competitive fully integrated C. Not offering that can look at infrastructures code see what that filled out looks like assess systems and how they're off.
<unk> real time enclosed in cloud environments, and so we have that very elegant code to cloud visibility and also the ability to go in verse. So from a piece of operator code in so some from operate in our lives systems and cloud environment, we can trace back toward.
The code, which produce those systems and how they're executing so we feel like we've got.
Highly differentiated highly competitive capabilities in the integration of carnivals existing functionality and cloud capabilities with what or medic brings to the table to that and we said, we're gonna be head to head competitive with all of the major and market leading <unk> vendors.
Out there and feel like.
We have a number of key differentiators and capabilities, including the cloud infrastructure settlement management functionality that is market, leading with dramatic brings to the table and are.
Visibility and get in our ability to give.
Customers visibility across hybrid environment, so not just what's happening in the cloud what systems. They have that are connected to their cloud in a much more accurate picture of overall exposure.
That's great May maybe quick follow up or are you are you currently seeing those vendors competitively now or is it mostly greenfield for Ya.
No we're seeing those vendors competitively.
Now again, we have differentiated ourselves.
In a number of fronts historically, including how tightly we can integrate beyond prime and cloud vulnerabilities, including Agentless assessment and infrastructures code as it with the addition of her about it and unified you know an elegant.
<unk> offering we feel like we can continue to love reach those traditional differentiators, but right, but and also go direct competition with all of the market, leading Ah Sienna vendors and we're more than our fair share.
Got a super helpful. Thank you.
Thank you next question comes to the line of Rob Owens.
Piper Saddler. Please go ahead.
Great. Thank you guys for taking my questions. This afternoon I'm Gonna follow in line with Brian and ask one question, that's really gonna turn into too Steve first of all just around the the C. C V discussion and I appreciate the disclosure there.
Is the commentary around the fact that when it's a perpetual deal.
It's a C V is actually less and so that makes it really impacts C. C. B, because obviously billings is revenue plus change into first so you're getting the revenue more upfront or is it the services that are associated with the contract that Ben wouldn't be necessarily in deferred revenue given how those work cause I was a little confused.
Yes, hi, Rob So we mentioned the outperformance in public sector, which wait on C. C B and specifically we saw.
We love Cats performance in public sector definitely use federal.
It was twice as high this quarter in terms of mix of business.
As in the corner of we've experienced previously since since going public so a much higher mix of business.
Cameron bias is more weighted towards perpetual licenses in these deals are large and complex and strategic in nature and came with a higher level of services. So it was the combination about professional life.
Licenses and professional services does not fully reflected in C. B.
With regard to perpetual licenses please.
These perpetual licenses.
Are in fact amortized over five years, that's how we recognize revenues. Consequently, only one fifth of the annual contract value related to these deals are reflected in calculated current billings.
Uhm professional services.
Will be delivered the course of the next several quarters and unlike our enterprise customers. These services cannot be built upfront and kind of compelling they're not included the C. C V.
Great. Thank you for the color there and then Ah meat for you, obviously very unfortunate with the geopolitical situation in the Middle East right now and I know her medics over there I'm just curious given when it was acquired in and what's transpired since any changes to to timeline.
Lots of integration into the cloud security Sweet as well thanks.
Yeah, I'll I'll I'll start off just by saying you know our team there is incredibly resilient and <unk>.
Incredibly proud of of the work that they're doing in their ability to keep focused that said, we do anticipate some modest delays in integration activities.
But for the most part of the strategic level. They continue to move forward and feel like those.
The changes will be modest.
Great. Thanks for the color.
Thank you next.
Next question comes from the line of June Fishbein twist.
The Security's. Please go ahead.
Alright. Thank you for taking my question and the one for you similar to Brian's, but Oh T space, that's b excuse to be crowded.
Seems like you are doing well, there and I'd love to just to understand the competitive dynamics of the space and then y <unk>.
Companies recover tomato tea, but it seems like you you've got some <unk>, let's get a little bit more color. Thanks.
Yeah, we're we're incredibly bullish about R O T business and that comes on the heels of a couple of quarters in succession here, where we're talking about it yearnings call. So they were pulling down larger <unk> larger opportunities in both public sector.
Or your significant opportunities in public sector with O T. It continued traction in critical infrastructure. We think these are markets that will continue to grow in importance from cyber security perspective, There's a couple of key differentiators for US one is we've got a very large and robust and diverse customer.
Based on a global basis, but he used to coming to us to help them evaluate cyber risks and we say that visibility, which we can provide on a unified basis across both Oh T. M. I T is a strategic differentiator for us relative to what most O T vendors <unk>.
<unk>, which is just a very myopic focus on control systems. If you walk you a factory floor. If you looked at a pipeline. If you look at you know manufacturing operations data center automation, what you'll see is that all of these systems. All of these activities have a combination of O T and I T and their environment.
Impossible to help someone assess and understand the risks to that operation looking only at control system. So we think we've got highly competitive products within strategically differentiated in our ability to combine I T N O T in the evaluation of risk.
Got a significant customer base and and distributions for that technology into into a what is a rapidly growing market.
Thank you next question comes from the line of <unk> 41, though.
Morgan Stanley. Please go ahead.
Hey, good evening guys. Thank you for taking my questions, Steve maybe a question for you and a meat as well just if I look at your <unk>.
5%.
Current billings growth.
This quarter.
The guidance for Q4 implies somewhere between 10 and 11 and then you're you're getting for <unk> next year I guess, if you back out the acquisition sort of low teams I'm just curious because it does seem like.
The environment go a little bit worse for you on the on the mid market side will give you confidence that you can accelerate next year.
Hi, This is Steve <unk>.
Yes, her guidance for the fourth quarter.
Does assume at the mid point, 11% in at the high end, 12% the range is nine.
Here is we look out over the next year I think the selling conditions that we're seeing today specifically in the mid market, we expect to persist.
And what we said direction for next year is mid teens grouse, that's inclusive of the contribution from <unk>.
And so largely we look at next year, we're assuming.
No change in the telling conditions same selling environment and we also have some slightly easier compare so that <unk> excuse growth a little bit. So I think we're taking a cautious approach to her out what's next year, but again well two four is a big corner for us and it's important to have that data point in the hands on February will <unk>.
Irvine.
Guidance and talk about the business in more specific terms, but we want to make sure that we have our cautious outlook and there's a lot of great things about our business and the performance in the corner was really strong as were commenting is not reflected in T. T V. But saw a major outperformance in U S. Federal.
But we think it's appropriate just given some of the selling conditions in the mid market to take a cautious approach here yeah. I guess, the only thing I would add to that is you know look we saw exceptional plankton recorder on the number of fronts in terms of your total one's gross both as a percentage of product and growth of.
Raw.
A large enterprise traction the seven secret deals the.
<unk> million dollar deals you know all record numbers for us the strength in federal and I said Kennedy just the competitiveness of the product. If you look products. If you looked at our portfolio across the board whether it's an.
The entity N O T R capabilities, and cloud security and our ability to differentiate both in core V M as well as in this unified platform sale, you know our confidence in the sales teams confidence and what they're seeing has never been this number stronger so that gives us you.
<unk> confidence going into into 2024, and like you said, we'll see how to four plays out and look forward to update folks on the plan as as we get into the queue one call.
Alright. Thanks.
Thank you next question comes from the line of Andrew <unk>. Please go ahead.
Great. Thank you.
Thanks for telling the question. So I was wondering on the Midmarket softness was there any anything specific to any like maybe sort of verticals within that bid market or any regions that were particularly soft or is that just broad based and maybe like what percentage of your installed base or revenue is derived from that mid market segment.
And it's more broad based in nature and approximately.
25 per cent of our total sales as we've discussed before is attributed to the mid market and it appears that smaller sized customers specifically in the mid market.
Certainly feel any more of the impact of the macro which tends to be fluid from from quarter to quarter.
Okay. Thanks to you and then I had a question on a larger customers the hundred thousand customers. It's been over 100000. It looks like you had a 386.
Excuse me 58, this quarter, which was down on a year over year basis I'm. I'm wondering you know given that you have kind of a one which I believe is a much higher price point in a larger presuming larger deal sizes was there any softness there that may have.
Cause your your new logo ads of a large customers too.
Decline on a year over year basis.
Yeah, I I guess I would just start off by saying listen to anytime you are in a tougher macro environment and I think what you're hearing consistently from us and other software companies is that your nuke new logo as is typically weaker and tougher markets. You know that said you know, we're still adding more than 300.
Plus logos onto our enterprise platforms, you'll still a solid number of of six figure ads and on top of that record number of seven and you'll have a million dollar plus you also strength in the more mature customer base, the larger enterprises that really value and understand security.
A little bit better and and solid solid performance, even if a tougher and tougher mid market.
Okay got it thanks guys.
Thank you next.
Next question comes from the line of trapped pretty back with Stifel. Please go ahead.
Oh, great. Thanks very much.
I mean high level question, given the breadth and depth of the product portfolio at this point and the vagaries of the mid market, which kind of it's always that way up and down what's the thought of pivoting the sales force to more of a up market focus.
Well, it's certainly something that we look at and try and provide you know careful balance around and you know as you recall we've got.
A real hybrid sales approach, where we've got inside sellers, which you know we think our cost effectively going after a mid market customers were 100% dedicated to channel. We transact all of our business through channel partners, which also help us achieve scale and cost effectiveness into that big market and then.
Direct touch.
At a price sales team working hand in glove with partners to get to those larger opportunities in larger enterprise customer. So we look at <unk> and also operate on the e-commerce side for for the the higher volume transaction. So we're trying to find the appropriate balance you have cost effective leverage an opportunity but.
Got it and then given.
The valuation of the stock and a significant amount of free task for.
You all are generating at this point, what's the board Saddam share repurchase activity.
Well I think there's a clear use of cats are good news for January and increasing levels of cash flow and we have confidence that will continue to drive higher levels of cash flow like.
Like the operating margins have expanded significantly over the years has to have their free cash flow margins.
And in terms of use of cash I would say the security market is very fragmented, making comment further but clearly we're using cash to acquire strategic and accretive assets, we're going deeper and wider and Clough security, which is a major market opportunity for us and that will continue to have.
<unk> other uses of cash to provide better returns for shareholders.
Great. Thank you very much.
Thank you <unk>.
Next question comes from the line of Roger Boyd.
B S. Please go ahead.
Great. Thanks for taking the question is the <unk> platform gets larger I'm wondering if you could provide any update on maybe where you are in terms of adoption of crowd security within the installed base and then.
More of a high level of question, but it feels like the industry has been talking about <unk> consolidation for some time and you talk to customers and it still sounds like buyer behavior skewing towards picking and choosing different point products in C. S. P M.
Et cetera, So I guess I'd love to get your perspective on how you think that the timeline for like crowd security consolidation plays up.
Yeah first of all I'll start by saying, we're seeing tremendous demand on the cloud security side.
At this point I said prior to acquisition tunnels already delivering cloud security capability it over a thousand.
Customers and so yeah, we're seeing demand, we're seeing momentum and we continue to invest organically and in organic green building out those capabilities certainly market, leading on the Infrastructure's code side.
<unk> <unk> <unk>, yeah absolute market leader when it comes to cloud infrastructure and entitlement management and so to your appointment earlier, even where other.
C. S. P. M solutions have been deployed or medic has shown the ability to sell along side those products with their team functionality that said I do believe that we're going to see a lot of consolidation both insecurity and specifically within cloud security because these capabilities really need.
To be tightly integrated to maximize value for customers because.
What you have in the cloud how it's configured how it's vulnerable who has access to those assets what are the permissions and entitlements see those assets what look what would it look like if any of those identities or assets were compromised I think all of those data points are tightly intertwined both of them are security and compliance <unk>.
And and I think that there's a very natural progression from point products and cloud to unified Seamount platforms and I think that's what you're hearing from most of the market leading.
Ah cloud security vendors and certainly what dramatic is bringing to the table for tunnel.
I appreciate the call and thank you for <unk>.
Thank you next question comes from the line of Great Power P.
B B I G. Please go ahead.
Great. Thanks for thanks for taking the questions.
Yeah, maybe I'm just kind of drilling on the queue for outlook I'd be curious are you guys expecting a budget flush this year and then just one on a comparison basis like how does the environment feel today versus this time last year better same or worse in terms of just the visibility that you feel.
Like you have.
I guess in terms of budget slash.
There certainly you love heading into Q4, we'd expect Q for to be sequentially higher in terms of C. C. B a in absolute dollar basis relative to.
<unk>, providing today, so the fourth quarter tends to be seasonally strong for US you can represent over 30% of our total sales we do see budget Flash, we would expect that in the fourth quarter.
We do we are expecting some of the selling conditions that we experienced in the mid market to persist.
But overall, we feel good about the guidance that we're giving today and I think in terms of the comparison to last year I think it's fair to say that this is a new budget cycle, new fiscal year and add new logos are tougher to transact in this fireman, but we're also very pleased to see.
Demonstrate real momentum not only with tenable, one where it's growing over 100 per cent and we're seeing higher selling prices there, but also really strengthen and large deals is Amy commented on it earlier.
Record number of seven figure deals also six you know half million dollar deals on <unk> the value that we deliver to our customers continues to grow in terms of importance in this resulting in larger deals yeah. Just the only other thing I would add to that is you know less less on the macro and more on the competitive.
This of products sex, whether it's on the O T side, our ability to win competed win and deliver cloud security an identity and the unification of these capabilities ton of of one <unk>.
Sales and go to market teams have never had greater confidence in the products that were being supermarket and our ability to value differentiate from competition. So there's there's a lot cause for optimism.
Understood. Okay. Thank you very much.
Thank you next question comes from the ninth of Brian Quigley Steven.
Steven <unk>. Please go ahead.
Alright, thanks for taking my questions.
So I wanted to drill down on the commentary around the mid market.
Could you just elaborate on.
Whether you saw was it was less new logos in the mid market or was it more related to expansion business and then you know.
As part of this due to increased competition in the mid market.
Yeah, great great questions I would say it is absolutely on the new logo side or continues to strengthen and renewal rates I think some pulled out of that dollar lower rates remained consistent and healthy.
Both in enterprise ended market.
Uhm, the competitive dynamics competitive landscape.
We just continue to see you know.
Strengthen improvement doesn't this quarter was the first significant step above previous quarters in terms of competitive when rates and closer. So we feel really good about where we're at competitively from a product perspective as well as our ability to execute just as we said more difficult to sends out new love.
Goes in the mid market in this.
Economy.
Got it Okay. That's helpful. And then one for you Steve apologies, if I missed it but did you disclose the statistic on what kind of a one represented as a percentage of of new business in total sales.
I did 20 per cent approximately a total new enterprise house.
Okay. Thank you.
Thank you.
Next question comes from the line of <unk> Welcome Jonathan.
Fifth please call it.
Hi, Thanks for taking my question and this is care broke them on for Jonathan Ho Uhm. So you noted success with panic selling number one as a string from a quarter. So how has pricing been for those specific to you have you been able to realize as much pricing as you anticipated or has there been a lot of discounting involved with just.
To get some color there thanks.
No change in pricing dynamics wished contingencies from traction with tenable, one so I'm prices. There are 70 per cent higher selling the platform in comparison to selling Standalone V. M. We haven't had an asset based pricing amato attainable, one and because <unk> <unk>.
Includes VM, but also.
Newer asset types, we are covering more assets within our customers environment. So that's what's driving the selling price is higher than the ability to capture more of those systems and more of those assets, but also delivering more value of greater insights and the price per asset Consequently is higher but no changes in pricing.
Got it thanks.
Thank you next question comes from the line of Matthew Kerry three Needham ankle. Please go ahead.
Hey, guys. This is naturally geometry maxi comes over it made him. Thanks for taking our questions I wanted to ask about how pipeline love and Q3, both in comparison to the first two quarters, which I believe are both record quarters and also in terms of linearity throughout the corner.
Yeah first one was a top of the phone will remain strong for us and as we stated on prior cause we container January healthy levels of demand.
And the size and the shape of those pipelines are very strong I think we're we're seen and what we specifically discussing the call as it relates to the mid market is the conversion rates the bottom of the final and the biggest you know.
Factor here is no decision, we're not seen any changes in pricing or competitive dynamics. We're confident will continue to be able to close deals at a very high rate in this market, though the macro and pack some customers more so than others and you know as fluid from one quarter to the <unk>. So the good news is that demand.
We believe remains healthy we have adequate pipeline coverage as we look into the fourth quarter now that we're one month and we take it all into consideration.
In terms of flow, we're off to a strong start hearing the fourth quarter, but yeah.
The quarter is <unk> back end loaded just like other software companies, it's not unusual for us to close.
50, 60% or more of our total new enterprise House.
In the last month and a lot of that can come in the last couple of weeks of the quarter.
Put a rush on good actually heading to queue for.
Awesome awesome. Thanks, so much and then despite macro pressures you mentioned net expansion right with steady and a quarter after decreasing for two in a row is it fair to think that this is stabilized at this level or how should we think about that going forward. Thanks.
Yeah, well the the net dollar expansion rate was 111% so consistent.
What we saw in the prior quarter keep in mind. The N D. R. R is a as in LTM number reflects the combination of sales.
And upgrades over the over the prior quarter's and I think it's fair to say that the.
The market was a little stronger last year than it is <expletive>. This year. So we're certainly encouraged to see it continue to be at 111% there could be further moderation in the rate. It could also increase we don't optimize the business for any one metric I think that's important to note and pipeline opportunities in any given quarter can fluctuate between new logo.
And I'll spell opportunity. So you know certainly there can be some variability here, but we wanted to provide transparency and we've reported quarterly and you know I think that's important so the good news is gross something that they're minorities themselves are very strong.
And when customers renew the expand more and we expect continued expansion as we move along here Nutley for for Q4, but also for for the full year.
Mr <unk>.
Yeah, great. Thanks, so much.
Thank you.
This concludes today's teleconference human disconnect your lines at this time, thank you for your participation.
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